US Fed to keep buying bonds; sees economic risks easing

Jun 20 2013, 01:26 IST
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SummaryTraders see statement as a step toward reduction in pace of bond buying

The US Federal Reserve on Wednesday said risks to the outlook for the US economy and job market had eased since last fall, but it said it would keep buying $85 billion in bonds per month given the still-high level of unemployment.

Describing the economy as expanding moderately, Fed officials cited further improvement in the labour market and the housing sector, even as they noted that inflation was running below their 2 per cent long-term goal.

In a statement after a two day meeting, the Fed’s policy-setting panel offered a more upbeat assessment of the risks facing the economy than they had after they last met in May.

“The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall,” the Fed said.

US stocks slipped, the dollar rose to session highs against both the yen and the euro, and US rate futures fell as traders saw the statement as a small step toward an eventual reduction in the central bank’s pace of bond buying.

“The statement contained a notable pat on the back, saying the downside risks to the outlook for the economy and the labor market have diminished since the fall, which is a necessary precursor if they are going to get to the point where they do start to taper,” said Greg McBride, senior financial analyst at Bankrate.com in New York.

Kansas City Fed president Esther George again dissented against the Fed’s expansion of its support for the economy, expressing concern it could fuel financial imbalances and hurt the Fed’s goal of keeping inflation contained. St. Louis Fed chief James Bullard also dissented, arguing the Fed should signal more strongly its willingness to defend its 2 per cent inflation goal.

The Fed has held overnight interest rates near zero since December 2008 while more than tripling its balance sheet to around $3.3 trillion with its bond buying. In its current installment of quantitative easing, it is purchasing $40 billion in mortgage-backed securities and $45 billion in longer-term US government securities each month.

May reduce bond buys this year, says Ben Bernanke

US Federal Reserve chairman Ben Bernanke on Wednesday said that the Federal Reserve could scale back its $85 billion in monthly bond purchases later this year if the US economy continues to improve.

At the post policy meeting news conference, he said that the reductions would occur in “measured steps’’ and that the programme could

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